* FTSE 100 falls 0.4 percent
* Ukraine says Russian troops back rebel advance
* Steady German inflation leaves open risk of euro zone dip
* Mining stocks hit by fall in iron ore prices
* Morrisons, CRH lifted by analyst upgrades
By Tricia Wright
LONDON, Aug 28 A ratcheting up of tension in
Ukraine on took its toll on Britain's top share index on
Thursday, knocking it back from its highest closing level in
nearly two months.
Ukrainian President Petro Poroshenko said that Russian
forces had entered his country and the military conflict was
worsening after Russian-backed separatists swept into a key town
in the east.
The blue-chip FTSE 100, which on Wednesday had risen
to its highest close since early July, had fallen 26.36 points,
or 0.4 percent, to 6,804.30 points by 1501 GMT, albeit with thin
trading volumes - at just over half the 90-day daily average -
exaggerating the market move.
Concerns over the situation in Ukraine overshadowed a trio
of positive data releases out of the United States. Its economy
rebounded more strongly than initially thought in the second
quarter, jobless claims fell for a second straight week, and
July pending home sales rose far more than had been expected.
"We see overall some exhaustion within the FTSE and expect
to see this consolidation pattern trade to the downside," Atif
Latif, director of trading at Guardian Stockbrokers, said.
Miners were the biggest fallers by some margin. The FTSE 350
Mining Index fell 2.7 percent, with mining company
Rio Tinto weakening by 3.9 percent on a drop in iron ore
Investors also remained focused on European Central Bank
policy in the wake of ECB President Mario Draghi's dovish
remarks in a speech at Jackson Hole, Wyoming, last week.
Annual inflation in Europe's largest economy held steady in
August, data showed. That suggested there is still a risk the
euro zone rate will fall and increased the dilemma for the ECB
over whether to take action.
ECB sources told Reuters on Wednesday new policy moves were
unlikely at the bank's meeting next week, unless August
inflation figures, due on Friday, show the euro zone sinking
close to deflation.
The FTSE has risen around 4 percent in the past 2 1/2 weeks,
helped by the expectations of ECB stimulus. The index climbed to
6,894.88 points in mid-May, its highest level in more than 14
years. But it has not passed 6,900, considered a key hurdle
before the FTSE can challenge record highs around 7,000.
Kyri Kangellaris, managing director at Strand Capital, said
he would look to "short" the FTSE at current levels - namely
take bets on a pull-back.
"I think it's a pretty good shorting opportunity at these
levels," he said.
Among the brighter spots on Thursday, CRH rose 2.1 percent,
the top blue-chip riser, as Credit Suisse lifted its rating on
the Irish building supplies group to "outperform" from
"underperform", citing valuation grounds.
And supermarket chain Wm Morrison advanced 1.6
percent, bolstered by a Deutsche Bank recommendation upgrade to
"hold" from "sell". It reckons Morrisons will report in-line
first-half results on Sept. 11.
There were some wild moves among FTSE 250 stocks.
Industrial inkjet company Xaar dropped 23 percent after
cutting its annual revenue forecast again.
CSR leapt 34 percent after it rebuffed an approach
from U.S. rival Microchip Technology.
(Additional reporting by Sudip Kar-Gupta; Editing by Alison